‘Rhetoric
doesn’t equal results’ says Global Witness in response to today’s European Commission’s Action
Plan on Financing Sustainable Growth. The Plan’s ‘eye-catching rhetoric
must be matched by a robust reality of regulation’ to fully ‘tackle the environmental and
social harm caused by the financial sector’.

Today’s
announcement from the European Commission to ‘reorient private capital to more
sustainable investments’ is evidence that the EU is taking
seriously its global commitments on climate (Paris Agreement) and sustainable
development (2030 UN Goals). The Action Plan on Financing Sustainable Growth sends
a clear message to investors managing pension funds, insurance, hedge funds and
private equity in Europe: ‘Stop ignoring the financial sector’s harm to people
and the planet.’

Rachel
Owens, Head of EU Advocacy, Global Witness said ‘Today’s EU Action Plan has ambitious aspirations, but lacks robust
regulations to tackle the environmental and social harm caused by the financial
sector. Decades of damage prove that voluntary measures for Europe’s financial
sector are not enough; the EU must regulate now.

The
reality of the global footprint of Europe’s financial sector makes for grim
reading: land grabbing and deforestation; contributing to climate change; and human
rights violations. Self-regulation does little to stop investors financing projects that
are socially or environmentally damaging. Yet EU regulation would immediately
help families across Africa and Asia who are being forced off their land due to
projects backed by
money from European investors.

The
Action Plan contains strong elements, which will improve the financial sector’s
ability to assess, manage and mitigate climate change, environmental and social
risks:

A new classification
system for climate change, and environmentally and socially sustainable
activities

However,
the reality of the Action Plan does not match its rhetoric. It depends too
heavily on voluntary measures instead of regulation; it is only focused on
climate change and ignores key social and governance risks; it lacks essential
due diligence and accountability mechanisms. Addressing these elements will
give the public and policy makers what they want. If not, the harm will go on.

Owens
concluded, ‘Our research shows the ugly
footprint caused by Europe’s financial industry. Yes we must reorient
sufficient capital to put our economies on a more sustainable growth path. Yes
we must protect the stability of the financial system from environmental and
social risks. Yes we must foster more transparency and long-termism in our
economy. And there’s just one way to do that. Through robust legislation that mandates financial
industry due diligence to stop environmental, social and governance harm. The Action Plan’s
eye-catching rhetoric must be matched by a robust reality.’

Action
1: Establishing an EU classification system for sustainable activities: would
enable financial institutions to better understand, manage and mitigate sustainability-related
risks; make it easier to raise funds for
socially useful purposes in a targeted way; and provide a framework for retail
investors to put their money where their heart is.

Action
7: Clarifying institutional investors' and asset managers' duties regarding
sustainability would enable those responsible for
investment decision-making to better understand, manage and mitigate sustainability
risks; as well as making it easier for the asset owners (investors and pension
beneficiaries) to hold their fund managers to account.